France to cut government spending for 1st time since 1958

The co-president of the Left Party Jean Luc Melenchon (C) marches on June 2, 2013 against austerity in the southwestern city of Perpignan, France (AFP Photo) / AFP

In their effort to shift austerity from tax hikes, France will cut spending for the first time in over 55 years, by $2 billion.

Prime Minister Jean-Marc Ayrault confirmed on Tuesday that the
French Government will decrease spending year on year. The
government is facing opposition from lawmakers who claim the
deficit will be higher than expected this year.

"This is the first time that we will propose to Parliament
such a reduction. It is a structural effort," said Ayrualt.

The central government will cut spending in 2014 by $2 billion to
avoid unpopular tax rises and quell unsustainable spending.

750 million euro will be cut from central government support and
750 million euro will be cut from ministry budgets. Ayuralt said
the government’s priorities would remain unchanged: job creation,
education, and housing.

Opposition lawmakers like Gilles Carrez who heads the finance
commission at the national Assembly, said in an interview to Le
Figaro the government would miss its targets, and that deficit in
the euro zone's second-largest economy could reach 4 percent in
2013. Carrez calculated this to be €20 billion higher than
anticipated.

After pledging to cut France's deficit to 3 percent this year,
President Francois Hollande and the Socialist government revised
their predictions and updated their deficit forecast to 3.7
percent of GDP.

Hollande has not yet been able to deliver on his promise of 0.1
percent growth, on which he campaigned a year ago.

Hollande isn’t alone. Within the 27 member eurozone, only Germany
and Austria have managed to generate positive growth, the rest
are left in a similar predicament as France- slow growth, high
unemployment, a looming triple dip recession, and a need to
somehow cut more.

To reach their budget deficit goal, France should cut the public
deficit to 3.9 percent of gross domestic product this year, then
3.6 percent in 2014 and 2.8 percent in 2015.

France’s economy officially slipped back into recession in May,
after it shrunk for a second consecutive quarter. The IMF has
forecast the economy will shrink 0.2 percent this year, more than
the 0.1 percent initially predicted.

President Hollande at first stood with Merkel
on austerity, but after being met by 30,000 protestors on the
first anniversary of his inauguration, among slews of other
protests, he has shifted his position to resonate with public
opinion.

France’s appeal to China

The President has asked China to increase investment in France,
to create a balance in employment between the two countries, the
head of state said at a speech at the Elysee Palace on Tuesday
before members of the China Entrepreneur Club
(CEC).

"There is no fear in French society," Mr. Holland assured
the entrepreneurs, inviting the Chinese to up their stake in
French projects, LePoint reported. Four percent of foreign
investors in France are Chinese, and the CEC generates 245
billion euros a year.